AB Capital

Securities, Inc.
Technical Analysis 101
November 15, 2013

The views expressed in this presentation are those of the investment professional
and are subject to change ay any time. These views do not necessarily reflect the
views of AB Capital Securities or others in the AB Capital organization
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STOCK MARKET
Securities, Inc. ANALYSIS

⮚ Stock analysis is a term that refers to the evaluation of a

particular stock, a sector or the market as a whole.

⮚ Fundamental and Technical analysis

⮚ Fundamental – Stock Selection; Technical - Timing

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TECHNICAL ANALYSIS
Securities, Inc.

⮚ Science of recording and analyzing trading data (price

changes, volume of transactions, etc) of a certain asset, with a
goal of predicting direction of prices

⮚ Assumptions of technical analysis

▪ 1. Price moves in trends.
▪ 2. Price discounts everything.
▪ 3. History repeats itself
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Advantages
Securities, Inc.of Technical Analysis
⮚ News and financial reports are often disclosed late.
⮚ Trends anticipate good or bad news.
⮚ Except for IPOs and buyback programs, insider buying and
selling are rarely Disclosed.
⮚ Price behavior is the most objective form of analysis.
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Disadvantages
Securities, Inc. of Technical Analysis

⮚ There are an infinite number of tools, patterns,

indicators and concepts to choose from.
⮚ Two Technicians may have different interpretations
about the same chart due to different beliefs,
different set of tools used or different time-frames
being looked at.
⮚ Biases and Preconceptions about Technical Analysis
may lead to false conclusions. A little knowledge is
dangerous.
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“The TrendInc.
Securities, is Your Friend”
The concept of a trend is absolutely essential to the technical
approach to market analysis. All of the tools used by the
chartist have the sole purpose of helping to measure the
trend of the market for the purpose of participating in that
trend. In a general sense, the trend is simply the direction of
the market or which way it’s moving.
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Types of Technical
Securities, Inc. Analysis Theories
⮚ Momentum Trading
⮚ Pattern-based (e.g. Classical Patterns, Elliott Wave Principle)
⮚ Contrarian/Sentiment Reading
⮚ Cycles
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Chart BasicsInc.
Securities,

⮚ Charts are the working tools of TA

⮚ Price axis and the volume axis
⮚ Key data in charts:
– Stock price data
– Volume
– Indicators
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Chart TypesInc.
Securities,

⮚ Line Charts ⮚ Candlevolume Charts

⮚ Bar Charts ⮚Kagi Charts

⮚ Candlestick Charts ⮚ Renko

⮚Point and Figure Charts ⮚Three Line Break Charts

⮚ Equivolume Charts
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Line ChartsInc.
Securities,
⮚ The most basic chart
⮚ Represents only the
closing prices over a set
period of time.
⮚ The line is formed by
connecting the closing
prices over the time
frame.
⮚ Do not provide visual
information of the
trading range
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Bar Charts Inc.
Securities,
⮚ Made up of a series of vertical lines that
represent each data point.
⮚ Vertical line represents the high and low
for the trading period, along with the
open and closing prices.
⮚ The close and open are represented on
the vertical line by a horizontal dash.
⮚ The opening price is illustrated by the
dash on the left side
⮚ The closing price is illustrated by the
dash on the right side
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Candlestick Charts
Securities, Inc.
⮚ Shows the open,
high, low and close
values for each time
period
⮚ Has a hollow or filled
portion called "the
body"
⮚ It has long thin lines
above and below the
body, which
represent the
high/low range and
are called "shadows“
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Securities, Inc.
Candlestick Charts
⮚ If the stock closes
higher than its
opening price, a
white candlestick is
formed
⮚ If the stock closes
lower than its
opening price, a
black candlestick is
formed
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Trend Analysis
Securities, Inc.
⮚ Trend is really nothing more than the general direction in
which a security or market is headed.
⮚ An uptrend is classified as a series of higher highs and
higher lows, while a downtrend is one of lower lows and
lower highs.
⮚ Types of trends - uptrend, downtrend and sideways
⮚ Type of trends based on time frame - primary, secondary
and minor trends
⮚ Can be drawn with trend lines or trend channels
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Securities, Inc.
Trend Analysis
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Primary Trend
Securities, Inc.

⮚ Trends which usually last for a year or more

⮚ Phases of a primary trend
▪ Accumulation / Distribution Phase
❖ Point at which investors start to enter / exit the market.
❖ When everything is seemingly at its best / worst.
❖ Point where most of the good or bad news are priced into the market,
thereby limiting downside / upside
❖ Most difficult one to spot
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Primary Trend
Securities, Inc.

▪ Public Participation Phase

❖ Sentiments start to change as business conditions vary
❖ As news starts to permeate the market, more and more investors move back
in / out
❖ Longest lasting and with the largest price movement.

▪ The Excess Phase

❖ Stage where the market have topped or bottomed
❖ A lot of attention should be placed on signs of weakness in the trend
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Securities, Inc.
Primary Trend
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Secondary
Securities, Trend
Inc.

⮚ Intermediate corrections
⮚ Moves in the opposite direction of the primary trend
⮚ Last for from three weeks to as many months
⮚ Retraces from one thirds to two thirds of swing
⮚ As long as the correction stay within retracement levels,
this to confirm the validity of the correction within a
primary uptrend.
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Secondary
Securities, Trends
Inc.
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Minor Trend
Securities, Inc.

⮚ Corrective moves within a secondary move

⮚ Movements lasting less than three weeks.
⮚ Meaningless in themselves
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Volume Analysis
Securities, Inc.
⮚ Used to confirm trends and chart patterns.
⮚ Price movements with relatively high volume is seen as a
stronger, more relevant move than a similar move with
weak volume.
⮚ Volume should move with the trend.
⮚ Volume is needed to confirm the pivotal moments of a
chart pattern
⮚ Price is preceded by volume. Important to determine
upcoming trend reversals
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Volume Analysis
Securities, Inc.
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Support and
Securities, Resistance
Inc.
⮚ Support and resistance represent key junctures where the forces of supply
and demand come into play.
⮚ Prices are driven by supply and demand.
⮚ Supply is synonymous with resistance while demand is synonymous with
support
⮚ Support is the price level at which demand is thought to be strong enough
to prevent the price from declining further.
⮚ Resistance is the price level at which supply is thought to be enough to
prevent the price from rising further.
⮚ Reversal of roles - when a support or resistance is violated, it then
functions as the opposite
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Identifying Support and Resistance
Securities, Inc.

⮚ Reversal of roles - when a support

or resistance is violated, it then
functions as the opposite
⮚ Support becomes resistance -
There is a tendency for those who
bought at a certain level to sell and
break even at the old support level
⮚ Resistance becomes support -
Those who sold out at the old
resistance will try to buy back their
shares at the price level close to
that where they sold out
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Identifying Support and Resistance
Securities, Inc.

⮚ High and low of trading range

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Identifying Support and Resistance
Securities, Inc.

⮚ Within Trendlines
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Identifying Support and Resistance
Securities, Inc.

⮚ Strong Volume Levels

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Identifying Support and Resistance
Securities, Inc.

⮚ Moving Averages
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Identifying Support and Resistance
Securities, Inc.

⮚ Gaps
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Identifying Support and Resistance
Securities, Inc.

⮚ Fibonacci Retracement Levels

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Identifying Support and Resistance
Securities, Inc.

⮚ Round Numbers
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Chart Patterns
Securities, Inc.

⮚ Chart patterns are used to predict future stock prices and

profit by this prediction
⮚ Two major types of chart patterns: Reversal and continuation
patterns
⮚ Some Reversal Patterns:
– Head and shoulder formation
– Double tops and bottoms
– Triple Tops and bottoms
– Rounding tops or bottoms
– Cup and handle
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Chart Patterns
Securities, Inc.

⮚ Continuation Patterns
– Wedge patterns
– Symmetrical Triangle formations
– Right Angle triangles
– Flag and pennant patterns
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Head and Shoulders
Securities, Inc. Formation
⮚ Consist of a left shoulder, a head, and a
right shoulder and a neckline.

⮚Left shoulder - extensive move where

volume is high, followed by a slight
pullback on low volume

⮚ Head - rally to a higher high with

normal or heavy volume, followed by
pullback on low volume

⮚ Right shoulder - prices move up again

but below the Head and at least below
the peak of the left shoulder.
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Head and Shoulders
Securities, Inc. Formation
⮚ Volume is less in the right shoulder compared to the left shoulder and the
head formation.

⮚ Neckline - drawn across the bottoms of the left shoulder, the head and the
right shoulder.

⮚ Confirmation - When prices break through the neckline and keep on falling
after forming the right shoulder

⮚ Price Target: The distance from the peak of the head to the neckline can be
subtracted (added) from the support (resistance) break for a price target.
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Double / Triple
Securities, Inc. Top or bottom
⮚ The pattern is made up of two or three
consecutive peaks or bottoms that are
roughly equal

⮚ The peaks or bottoms should be

separated by about a month.

⮚ When a key support or resistance is

broken, a reversal is confirmed.

⮚ Breakout should occur with an increase

in volume

⮚ The distance from support (resistance)

break to peak can be subtracted from the
support (resistance) break for a price
target.
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Rounding
Securities,Top
Inc.or Bottom
⮚The Rounding top / Bottom is
a long-term reversal pattern,
which represents a long
consolidation period that turns
into a reversal

⮚Confirmation comes when

the pattern breaks above the
reaction high or below the low

⮚Volume levels should track

the shape of the rounding
formation
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Cup and Handle
Securities, Inc. Formation
⮚A pattern that resembles a cup with a
handle.

⮚The cup is in the shape of a "U" and the

handle has a slight downward drift.

⮚The handle has low trading volume and is

short in duration

⮚The handle represents the final

consolidation/pullback before the big
breakout

⮚There should be a substantial increase in

volume on the breakout above the handle's
resistance.
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Wedge Patterns
Securities, Inc.
⮚Price fluctuations converge to a point on a straight line.

⮚Its a temporary pause in the current trend.

⮚Volume in a wedge formation diminishes as the formation develops.

⮚There are two types of wedge formations: rising and falling.

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Symmetrical Triangles
Securities, Inc.
⮚The pattern contains at least two
lower highs and two higher lows.

⮚The lines converge as they are

extended and the symmetrical
triangle takes shape.

⮚You could also think of it as a

contracting wedge, wide at the
beginning and narrowing over time.

⮚The direction of the next major

move can only be determined after a
valid breakout.
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Ascending
Securities, /Inc.
Descending Triangles
⮚Pattern characterized by a contraction in price range and converging
trendlines.

⮚The widest point of the triangle is at the start of its formation

⮚As the market continues to trade in a sideways pattern, the range of trading
narrows, and the point of the triangle is formed.
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Ascending
Securities, /Inc.
Descending Triangles
⮚ They are usually continuation patterns

⮚Triangle Patterns can be broken down into three categories: the ascending
triangle, the descending triangle, and the symmetrical triangle.
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Flags and Pennants
Securities, Inc.
⮚Continuation patterns that mark a small consolidation before the previous
move resumes.

⮚These patterns are usually preceded by a sharp advance or decline with

heavy volume, and mark a mid-point of the move.

⮚There should be evidence of a prior trend.

⮚Composed of the flagpole and the flag or a pennant

⮚Volume should be heavy during the advance or decline that forms the
flagpole.
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Flags and Pennants
Securities, Inc.
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Momentum Tracker
Securities, Inc.
⮚Moving averages are generally used to measure momentum and define
areas of possible support and resistance.

⮚It is also used to emphasize the direction of a trend and to smooth out price
and volume fluctuations, or "noise"

⮚Defines the current trend with a lag. They lag because they are based on
past prices.

⮚Simple moving average is computed by getting the average price of a

security over a specific number of periods.

⮚A 5-day simple moving average is the five day sum of closing prices divided
by five.
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Momentum Tracker
Securities, Inc.
⮚Exponential moving averages reduce the lag by applying more weight to
recent prices.

⮚Two moving averages can be used together to generate crossover signals.

⮚A bullish crossover occurs when the shorter moving average crosses above
the longer moving average. This is also known as a golden cross.

⮚A bearish crossover occurs when the shorter moving average crosses below
the longer moving average. This is known as a dead cross.
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MACD
Securities, Inc.
⮚MACD (moving average
convergence /divergence) spots
changes in the strength, direction,
momentum, and duration of a trend in
a stock's price.

⮚Has two lines: the MACD line (solid

line) and the signal line (dashed line).

⮚The MACD line is the difference

between a "fast" exponential moving
average (EMA), and a "slow" EMA.

⮚The signal line or average line is the

EMA of the MACD line

⮚Buy and signals are generated when

the MACD line crosses the signal line
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Oscillators
Securities, Inc.
⮚Indicators that are used when viewing charts that are non-trending.

⮚Shows When the stock is in either an overbought or oversold situation,

⮚Overbought - when the stock is running out of steam on the upside when buying
volume has been diminishing

⮚Oversold - when a stock has been sold and seem to have bottomed out.

⮚Most common oscillator is the Relative Strength Index (RSI)

⮚Lower range of the (RSI) is 30 (oversold) and the upper range is 70 (overbought).

⮚RSI gives three types of trading signals: divergences, charting patterns and the
level of RSI
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Oscillators
Securities, Inc.
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PSEi
Securities, Inc. Analysis
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PSEi
Securities, Inc. Analysis
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PSEi
Securities, Inc. Analysis
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Primary Inc.
Securities, and Secondary Trend
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Support
Securities, Inc. and Resistance
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Fibonacci Supports
Securities, Inc. and Resistance
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Flag
Securities, Inc. Formation
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Oscillator
Securities, Inc. Divergence
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Conclusions
Securities, Inc.
⮚ PSEi short term is in a sideways pattern as shown by the flat moving averages

⮚ Long term bullish as shown by the strong uptrend channel

⮚ Secondary trend is corrective and is indicative that we are in the excess phase

⮚ Only visible pattern is a potential bullish continuation pattern

⮚ Support levels 6,200 (50-d exponential MA,), 6,000 (fibonacci retracement) and
5,600

⮚ Resistance are 6,640 and 6,700

⮚ Market appears headed for a correction near term and a potential ABC
corrective may be due early next year
 AB Capital
Research
Securities, Inc.
 AB Capital
Research
Securities, Inc.
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Securities, Inc.

The End